Adjustable-Rate Mortgage

An Adjustable-Rate Mortgage (ARM) is a home loan with an interest rate that changes periodically based on a specific financial index. Initially, it usually offers a lower fixed rate for a set period, such as 5 or 7 years, then adjusts annually or at regular intervals afterward. The rate adjustments are subject to limits to protect borrowers from large increases. ARMs can be beneficial if interest rates stay steady or decline, but they carry the risk of higher payments if rates rise. They are suitable for borrowers who plan to sell or refinance before the adjustable period begins.